Google (GOOGL): How I Voted – Proxy Score 41

Google Inc, $GOOGL, is one of the stocks in my portfolio. Their annual meeting is coming up on 5/14/2014. ProxyDemocracy.org had collected the votes of three funds when I checked and voted on 5/8/2014. As I post this, I see they now have voting for five funds. I voted with management 41% of the time. View Proxy Statement.

I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.

Google’s Summary Compensation Table shows Executive Chairman Eric E. Schmidt, was the highest paid named executive officer (NEO) at about $19.3M in 2013. I’m using Yahoo! Finance to determine market cap ($344B) and Wikipedia’s rule of thumb regarding classification. Google is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $9.7 million in 2012, so Google is well over median. Therefore, I voted against the pay package and against the members of the compensation committee: Paul S. Otellini, Chair, and L. John Doerr.

The GMIAnalyst report I reviewed gave Google an overall ‘F.’ From their report:

Google’s governance practices don’t seem to offer much room for change. The company is majority controlled through the two founders CEO Larry Page and Sergei Brin, via shares carrying superior voting rights.

The following flagged KeyMetrics indicate the most important factors driving our current ESG rating for Google: Possible Related Party Transactions, Overboarded Directors, Controlling Shareholder Concerns, Other Social Impact Events and Investigations. After reviewing GMI’s report and the proxy, I also decided to vote against Ann Mather who serves on four other corporate boards as well as on the board of the Dodge & Cox Funds. That’s too many, especially if one of more get into any kind of serious trouble.

With regard to shareowner proposals, I voted in favor of all of them. John Chevedden’s proposal to adopt a recapitalization plan as soon as practicable for all outstanding stock to have one-vote per share is the most critical. Without that, further reforms are unlikely and our company courts disaster, risking all on the basis of a few so far brilliant thinkers. That isn’t likely to last forever. As shareowners, we should share in the direction of our company. Google claims, “Democracy on the web works.” It works in corporate governance as well, if given a chance.

Walden Asset Management is the lead filer for a proposal requesting the Board authorize the preparation of a report, updated annually, and disclosing company policies, procedures, payments and membership, as well as the decision-making process for direct and indirect, lobbying and in organizations that write and endorse model legislation. Google claims, “You can make money without doing evil.” Let’s verify we are doing that.

The Firefighters’ Pension System of the City of Kansas City, Missouri has a proposal asking the Board to require that directors be elected by majority vote. Again, Google claims, “Democracy on the web works.” It works in corporate governance as well, if given a chance. Why seat a director who can’t win a majority of the vote even when no one is running against them?

The Domini Social Equity Fund is a lead filer on a proposal requesting the Board adopt a set of principles and publish an annual report to address the impact of Google’s tax strategies on society, with particular focus on Google’s employees, customers and suppliers. Chairman Eric Schmidt wrote: “At a time when families are having to tighten their belts… corporation tax is rightly a hot topic. And as a company that has always aspired to do the right thing, we understand why Google is at the centre of that debate.” (The Guardian, 5/18/13). If we are doing the right thing, let’s get credit for it; if not, let’s fix it so we are.

Last, the Massachusetts Laborers’ Pension Fund asks the board to adopt a policy that, whenever possible, the board’s chairman should be an independent director who has not previously served as an executive officer of the Company. I agree with the Council of Institutional Investors and the Millstein Center for Corporate Governance, “The time has come for independent chairmanship to become the default model of board leadership in corporate North America.” Evolution of the role of the board has created an array of significant duties, difficult to reconcile with the full-time required to manage the demands of a large company. According to a survey by the National Association of Corporate Directors, 72.8% of directors serving on boards with an independent chair opined that companies greatly benefit, while 6.7% stated they did not. According to the latest Spencer Stewart survey of board members, 64% agree or strongly agree that splitting the positions results in more independent thought by directors, while 60% affirm that it leads to more effective CEO evaluations.

How I voted (CorpGov) below, with votes against the Board’s position noted in bold:

Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to Google’s Corporate Secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2015 Annual Meeting of Stockholders, the Corporate Secretary of Google must receive the written proposal at our principal executive offices no later than November 28, 2014. If we hold our 2015 Annual Meeting of Stockholders more than 30 days before or after May 14, 2015 (the one-year anniversary date of the 2014 Annual Meeting of Stockholders), we will disclose the new deadline by which stockholders proposals must be received under Item 5 of Part II of our earliest possible Quarterly Report on Form 10-Q or, if impracticable, by any means reasonably determined to inform stockholders. In addition, stockholder proposals must otherwise comply with the requirements of Rule 14a-8 under the Exchange Act. Such proposals also must comply with SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to:

Looking at SharkRepellent.net, is has a plurality vote standard to elect directors with no resignation policy. No action can be taken without a meeting by written consent. Special meetings can only be called by shareholders holding not less than 20% of the voting power. The Corporation shall not consummate a Change in Control Transaction (or amend this provision) without first obtaining the affirmative vote, at a duly called annual or special meeting of the stockholders of the Corporation, of the holders of the greater of: (A) a majority of the voting power of the issued and outstanding shares of capital stock of the Corporation then entitled to vote thereon, voting together as a single class, and (B) sixty percent (60%) of the voting power of the shares of capital stock present in person or represented by proxy at the stockholder meeting called to consider the Change in Control Transaction and entitled to vote thereon, voting together as a single class. Supermajority vote requirement (66.67%) to amend certain charter provisions.From Yahoo! Finance, Google Inc.’s ISS Governance QuickScore as of May 1, 2014 is 10. The pillar scores are Audit: 1; Board: 7; Shareholder Rights: 10; Compensation: 10.Brought to you by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures. The score would probably be 11 but it doesn’t go that high.